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Courts Look Closely at the Contractual Relationship Between Plan Sponsor and PBM

In re Express Scripts/Anthem ERISA Litig., 285 F. Supp. 3d 655 (S.D.N.Y. 2018), the district court concluded that pricing provisions in the relevant PBM agreement did not give the PBM discretion over pricing, as the plaintiffs alleged.

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Under the provisions, the health benefits provider contracting with the PBM could perform a periodic market analysis to test whether the PBM was providing “competitive benchmark pricing” to the health benefits provider. If the analysis revealed that pricing was not competitive, the PBM was obligated to negotiate in good faith over new pricing.

The court rejected the plaintiffs’ argument that the PBM’s ability to set pricing pursuant to its own interpretation of “competitive benchmark pricing” amounted to discretion over pricing, concluding that the PBM was only executing the PBM agreement’s pricing scheme.

Tyrone’s Commentary:

Why do plan sponsors continue to have their hats handed to them by non-fiduciary PBMs? For starters, your approach is wrong! The court wrote and I quote, “the PBM was only executing the PBM agreement’s pricing scheme.” In layman’s terms, the court is saying it is a lack of education which allows these pricing schemes to prevail and it [court] will not bail you out for being uneducated. In response to Ohio’s new approach to managing drug costs, Ohio’s Medicaid Director, Maureen Corcoran, recently said, “Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on necessary changes in an educated way.” Transparency starts with the contract language folks not price quotes. Win radical transparency first then lower prices follow. Ohio finally gets this do you? Here is my final point. The best driver of lowest net cost is being a highly educated purchaser of PBM servicesPurchasers need to understand not only what they want to achieve in their relationship with their PBM but also the competitive market and their ability to drive disclosure of details on services important to them. 

Similarly, the court rejected the plaintiffs’ argument that the PBM’s ability to maximize the spread between the prices it paid and the amounts it billed to insurance companies and insureds made it a fiduciary, again noting that the PBM agreement contemplated such activity and did not require the PBM to pass on savings to participants.

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Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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